MGIC Investment: Evenly Poised - Analyst Blog

On May 21, we issued an updated research report on the MGIC Investment Corp. MTG. The mortgage insurer reported earnings of 15 cents per share in the first quarter of 2014, outpacing the Zacks Consensus Estimate by nearly 67%. Results rebounded significantly from the year-ago loss of 31 cents per share. The outperformance was driven by the low level of incurred losses.

The reported quarter marked three straight quarters of positive earnings surprises and represented the highest level of quarterly profitability since 2007.

Following a better-than-expected first quarter earnings performance, MGIC witnessed rising earnings estimates. Over the last 30 days, the Zacks Consensus Estimate for 2014 moved up 8.0% to 50 cents per share as out 3 of the 4 estimates moved north.

MGIC which was a significant player in the private housing mortgage insurance market prior to 2006 was battered by the subprime mortgage crisis and persistently reported in the red from 2006 to 2012. Since last year, the company started experiencing positive market movements but ended the year in loss.

However, the operating environment is rapidly changing for better.  We expect an improving housing market, along with the outstanding credit quality of the company's new business and the industry's growing business from the Federal Housing Authority (FHA), to lead to consistent growth at MGIC.

Additionally, the quality of the new business written by the company has improved. This Zacks Rank #3 (Hold) private mortgage insurer enjoys a steady stream of new business.

MGIC's efforts toward fortifying its capital has also yielded results by decreasing its risk to capital based ratio.   

On the tepid side, MGIC's net investment income has been under pressure and is expected to remain so in the near term. There also remains a risk of lower loan originations if interest rates spike from Fed taper. Also, proposed capital regulations can exert greater capital strain.

Other Stocks

Better-ranked stocks in the industry include Old Republic International Corp. ORI and Horace Mann Educators Corp. HMN with a Zacks Rank #1 (Strong Buy) as well as Prudential plc. PUK with a Zacks Rank #2 (Buy).
 

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